POLICY
UK orders Facebook to sell Giphy, rejects Meta’s proposed merger conditions
UK agency says "behavioral remedies" won't fix problem, so a breakup is needed.
The UK's Competition and Markets Authority (CMA) today ordered Facebook owner Meta to sell Giphy, saying the merger "would reduce competition between social media platforms and that the deal has already removed Giphy as a potential challenger in the display advertising market."
Facebook bought Giphy in May 2020 for a reported $400 million "but has been required to hold the businesses separate" since June 2020, when the CMA imposed an Initial Enforcement Order (IEO), the UK government body said in a summary of its final report today. After the 17-month investigation, "we have decided that the only effective way to address the competition issues that we have identified is for Facebook to sell Giphy, in its entirety, to a suitable buyer," the CMA wrote.
The CMA said it found that "Facebook would be able to increase its already significant market power in relation to other social media platforms by denying or limiting other platforms' access to Giphy GIFs, driving more traffic to Facebook-owned sites—Facebook, WhatsApp and Instagram—which already account for 73 percent of user time spent on social media in the UK" and by "changing the terms of access by, for example, requiring TikTok, Twitter, and Snapchat to provide more user data in order to access Giphy GIFs."
Facebook had proposed merger conditions in order to save the purchase, but the CMA said that "behavioral remedies" won't fix the competition problems and that Facebook could "circumvent" such requirements. Meta can appeal the CMA's ruling.
CMA rejects claim that Giphy can’t compete on its own
The CMA also said that "Facebook terminated Giphy's advertising services at the time of the merger, removing an important source of potential competition," which is "particularly concerning given that Facebook controls nearly half of the £7 billion display advertising market in the UK." The CMA said:The parties told us that it was likely that Giphy would have become a significantly weakened business had it not been bought by Facebook. Our view is that, had the merger not gone ahead, Giphy would have continued to supply GIFs to social media platforms (including Facebook), as it had done before the merger, and would have continued to innovate, develop its products and services, generate revenue and explore (with the financial and commercial support of investors) various options to further monetize its products. This would have been the case regardless of Giphy's ownership (i.e., whether it operated independently, as it did before the merger, or in the hands of an alternative purchaser).If Facebook hadn't purchased Giphy, it would have had the options of "(i) paying some form of platform fee or license fee to Giphy, (ii) relying more heavily on other GIF providers (eg Tenor), or (iii) building its own GIF library," the CMA said.
Meta considers appeal
Meta said in a statement provided to Ars that it disagrees with the ruling and is considering whether to appeal. "Both consumers and Giphy are better off with the support of our infrastructure, talent, and resources," the Facebook owner said. "Together, Meta and Giphy would enhance Giphy's product for the millions of people, businesses, developers, and API partners in the UK and around the world who use Giphy every day, providing more choices for everyone." An appeal would apparently be heard by the UK Competition Appeal Tribunal. The Wall Street Journal noted that the appeal tribunal recently upheld a CMA decision that "blocked Sabre Corp.'s tie-up with rival travel booking service Farelogix Inc."Facebook fined by UK after ignoring “repeated warnings”
The CMA last month fined Facebook £50.5 million, saying the company violated a requirement "to provide the CMA with regular updates outlining its compliance" with the Initial Enforcement Order issued at the beginning of the investigation. "Facebook significantly limited the scope of those updates, despite repeated warnings from the CMA," the CMA said at the time. Compliance reports are meant to "ensure that the CMA has oversight of the companies' behavior, including whether Facebook has been taking any action which might prejudice the outcome of its investigation," the CMA explained. "This is the first time a company has been found by the CMA to have breached an IEO by consciously refusing to report all the required information. Given the multiple warnings it gave Facebook, the CMA considers that Facebook's failure to comply was deliberate." Even though Meta and Giphy are US-based entities, the CMA said it has jurisdiction under the "share of supply test" that helps determine whether a merger would harm competition in the UK. The companies "overlap in the supply of apps and/or websites that allow UK users to search for and share GIFs, in which the parties have a combined share (by average monthly searches) of 50-60 percent," well above the threshold of 25 percent, the CMA said.CMA: Behavioral remedies wouldn’t fix problems
The CMA said that Facebook proposed alternatives to blocking the merger outright, such as an "'open access' remedy, which would maintain access to Giphy's library to new and existing API partners," and a "white label licensing remedy, which would involve the creation and sale of a white label copy of Giphy's content library and a license to use Giphy's search algorithm for five years." The CMA concluded that the Facebook-proposed remedies would not be effective in protecting competition because they "are behavioral in nature (i.e., they would seek to regulate the ongoing behavior of the merger parties) rather than structural (i.e., re-establishing the structure of the market expected absent the merger)." The CMA explained:In this case, we have only found one effective remedy—the full divestiture of Giphy... Although behavioral remedies may be suitable in certain cases, this merger does not have such characteristics. In particular, the SLCs [substantial lessenings of competition] that we have found are dynamic in nature and are not time-limited, reducing the likelihood that a behavioral remedy would provide an effective and comprehensive solution. We also found a number of specific risks with Facebook's proposed remedy options, including their inability to comprehensively address the SLCs, the challenges in specifying Facebook's obligations, the risks of Facebook being able to circumvent these obligations, and the difficulties in monitoring and enforcing Facebook's compliance with these obligations.
